A month has gone by since the last earnings report for Tetra Tech (TTEK Quick QuoteTTEK - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tetra due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Tetra Tech Q3 Earnings & Revenues Beat, ’23 View Up

Tetra Tech reported impressive third-quarter fiscal 2023 (ended Jul 2, 2023) results. The company’s earnings beat the Zacks Consensus Estimate by 9.3%, marking the 24th consecutive quarter of delivering a surprise. Sales also surpassed estimates by 1.5%.

Tetra Tech’s adjusted earnings per share in the reported fiscal quarter were $1.29, ahead of the consensus estimate of adjusted earnings per share of $1.18. Quarterly earnings expanded 19.4% from the year-ago reported figure of 1.08 cents per share.

The bottom line also surpassed management’s projection of earnings of $1.15-$1.20 per share.

Revenue & Segmental Performance

In the fiscal third quarter, Tetra Tech generated adjusted revenues of $1,208.9 million, reflecting a year-over-year increase of 35.8%. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $987.6 million, up 37.1% year over year. The quarterly top line came above management’s guidance of $750-$800 million.

Tetra Tech’s revenues exceeded the Zacks Consensus Estimate of $973 million.

The backlog at the end of the fiscal quarter was $4,386.3 million, up 25% year over year.

Revenues from U.S. Federal customers (accounting for 25% of the quarter’s revenues) were up 30% year over year, supported by broad-based environmental growth. U.S. Commercial sales (20% of the quarter’s revenues) increased 22% year over year on higher clean Energy and Environmental sales.

U.S. State and Local sales (12% of the quarter’s revenues) increased 16%, due to strength in digital water. International sales (43% of the quarter’s revenues) increased 68% year over year, backed by higher sustainable Infrastructure sales.

Tetra Tech reports revenues under the segments discussed below:

Net sales of the Government Services Group segment were $390 million, up 16% year over year. Revenues from the Commercial/International Services Group segment totaled $597 million, representing a year-over-year increase of 55%.

Margin Profile

In the fiscal third quarter, Tetra Tech’s subcontractor costs totaled $221.4 million, reflecting an increase of 30.4% from the year-ago quarter. Other costs of revenues (adjusted) were $798.7 million, up 38.7% from the fiscal third quarter 2022. Selling, general and administrative expenses were $89.1 million, up 46.2% from the year-ago fiscal quarter.

Operating income (adjusted) in the reported fiscal quarter increased 20.4% year over year to $99.8 million, while the adjusted margin increased 60 basis points to 12.1%.

Balance Sheet and Cash Flow

While exiting third-quarter fiscal 2023, Tetra Tech had cash and cash equivalents of $176.1 million, compared with $185.1 million recorded at the end of the fourth quarter of fiscal 2022. Long-term debt was $906.9 million, compared with $246.2 million recorded at the end of fourth-quarter fiscal 2022.

In the first nine months of fiscal 2023, Tetra Tech generated net cash of $246.1 million from operating activities, compared with $276 million in the prior fiscal year’s comparable period. Capital expenditure was $17.3 million, up 106.2% year over year. In the said fiscal period, TTEK’s proceeds from borrowings amounted to $979.9 million, while repayments on long-term debt totaled $411.7 million.

Shareholder-Friendly Policies

Tetra Tech distributed dividends totaling $38.3 million in the first nine months of fiscal 2023. This compares favorably with the dividends of $33.8 million distributed in the year-ago fiscal period.

Fiscal 2023 Outlook Raised

For fiscal 2023 (ending September 2023), Tetra Tech anticipates net revenues of $3.66-$3.71 billion, compared with $3.10 - $3.20 billion anticipated earlier. The midpoint of the guided range — $3.69 billion — lies above the Zacks Consensus Estimate of $3.66 billion. Adjusted earnings are predicted to be $5.23-$5.28 per share, compared with $5.07-$5.17 per share predicted earlier. The consensus estimate for the same is $5.12 per share.

For the fourth quarter of fiscal 2023, management estimates net revenues of $965-$1,015 million. The midpoint of the guided range — $990 million — lies above the Zacks Consensus Estimate of $976.7 million. Adjusted earnings are projected to be $1.43-$1.48 per share for the fiscal quarter. The midpoint of the guided range — $1.46 — lies above the consensus estimate of adjusted earnings of $1.44 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Tetra has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Tetra has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.